Santander to absorb subsidiary Banesto

Spain's largest bank, Santander, is taking full ownership of its 90 per cent-owned subsidiary Banesto, the latest move in a round of consolidation among the country's lenders.

The absorption will cost Santander about €218m (£177m). It will pay a 25 per cent premium to Banesto's closing price on the Madrid stock exchange on Friday and close about 700 local branches as it tries to cut longer-term costs.

Spain's banks, hit by a slump in the property market and recession, are cutting costs and trying to rid themselves of about €185bn of real estate assets. There are concerns the industry may need more financial support as the state struggles with one of the largest deficits in the eurozone.

Santander, which is headed by Emilio Botin, bought Banesto in 1994, a year after it was rescued by the Spanish central bank.

The group said the consolidation would generate savings of €520m by the third year of the merger, of which €100m are expected from revenue increases.

Santander, Banesto and the unlisted private banking division Banif, which will also be absorbed in the merger, have 4,664 offices. The group's combined market share of branches in Spain will rise from 10 per cent to 13 per cent in 2015, by when Spain is expected to have 30,000 bank branches, down by 16,000 or 35 per cent in eight years.